The Retirement Expenditure Guidelines show what New Zealanders spend in retirement.

Housing arrangements crucial to retirement lifestyle

The rising costs of housing, heating and insurance are negatively impacting the lifestyles of many Kiwis in retirement, according to the latest Retirement Expenditure Guidelines, released by the Fin-Ed Centre and Workplace Savings NZ.

The Fin-Ed Centre (Financial Education and Research Centre) – a joint initiative between Westpac and Massey University – has updated the New Zealand Retirement Expenditure Guidelines, which were first released in 2012.

The new guidelines, which include information on housing costs for the first time, aim to give New Zealanders a clearer picture of the cost of a ‘no frills’ or ‘choices’ (which includes some luxuries) lifestyle in retirement.

Massey University lecturer and report author Dr Claire Matthews says that while housing costs are extremely variable, they are too significant to ignore.

“While the differences between renting and owning make it impossible to say what retirees are actually spending on housing at the current time, the report gives an indication of what income might be needed for some typical types of housing arrangements,” Dr Matthews says.

The New Zealand median cost for a one-bedroom flat is $280 per week, but this varies from $140 per week in the Tararua District to $435 per week in Remuera, Auckland. A couple wanting a three-bedroom house to accommodate visiting family would need to spend $185 per week in the Tararua District and $650 per week in Remuera.

“You can see the significance of these costs when you compare them to the current rates of New Zealand Superannuation,” Dr Matthews says. “A single person living alone receives $357.42 net per week, which leaves just $132.42 for other expenses if they are paying the median rate of $225 for a one-bedroom flat.”

The report also discusses the costs of home ownership, including debt repayments if the property is not mortgage-free at the time of retirement, rates and ongoing maintenance.

“Basically, retirement is going to be a whole lot more comfortable if you can get there in your own home and mortgage-free,” Dr Matthews says. “In an ideal world you would also be up to date on all your maintenance or have moved into a low-maintenance house before retiring, but that, of course, is not always possible.”

The 2013 Retirement Expenditure Guidelines also update general living costs to show what retirees are spending on food, clothing, utilities, health, transport and recreation. While overall average expenditure for retirees remains similar, Dr Matthews found some items had increased significantly in cost over the past 12 months.

“While we are living in a low-inflation environment, the cost of energy has gone up by 4 per cent, outpatient services, which can be significant for retirees, have increased by 3.5 per cent and insurance costs have increased by 6.1 per cent – and that’s on the back of a 6.7 per cent increase last year,” Dr Matthews says.

“If these items represent a significant proportion of your expenditure, then you are going to be hurting, even with the small increase we have seen in superannuation payments.”

Simon Power, Westpac's managing director, private wealth and insurance, says while the latest Retirement Expenditure Guidelines present a number of challenges, he believes New Zealanders are responding to the savings challenge.

As at the end of June 2013, circa $15 billion had been invested by New Zealanders in Kiwisaver, of which Westpac is a substantial provider, up from $11.7 billion as at June 2012.

"New Zealanders are beginning to recognise that Kiwisaver is a very effective savings mechanism, which will help them provide for an appropriate lifestyle in their retirement," says Mr Power.

Workplace Savings NZ executive director Bruce Kerr agrees. “We are delighted that this year we have been able to include information about the cost of accommodation in the Retirement Expenditure Guidelines report to help complete the picture on the full costs faced by those already in retirement,” he says.

“Hopefully, for those currently in the workforce, accumulating retirement savings in KiwiSaver or elsewhere will support a transition to retirement with little or no debt and a suitably affordable accommodation solution.”

Key figures from the 2013 Retirement Expenditure Guidelines

2013 New Zealand Superannuation payments for a single person, living alone – $357.42 per week.

2013 New Zealand Superannuation payments for a couple, who both qualify – $549.88 per week.

A two-person household in Auckland or Wellington would need $249.61 per week for a ‘no frills’ retirement, while a couple in provincial New Zealand living the same lifestyle would need $249.72 per week.

The cost for a two-person household to live a more fulfilling ‘choices’ lifestyle is $786.70 per week in metropolitan areas, and $715.77 per week in regional New Zealand.

Items showing significant cost increases in the past year:

Household energy – up 3 per cent

Fruit and vegetables – up 2.7 per cent

Outpatient services – up 3.5 per cent

Insurance – up 6.1 per cent

Housing rents – up 2.1 per cent

Rates – up 4.2 per cent

These are offset by some items where prices have decreased in the past 12 months:

Grocery food – down 1.5 per cent

Clothing and footwear – down 1.8 per cent

Private transport supplies and services – down 2.3 per cent

Recreation and culture – down 1.5 per cent

Telecommunications – down 5.2 per cent

Notes: ‘No Frills’ – A basic standard of living that includes few, if any, luxuries; ‘Choices’ – A better standard of living that includes some luxuries or treats.